Question

During 2019, Leisel, a single taxpayer, operates a sole proprietorship in which she materially participates. Her proprietorship generates gross income of $142,000 and deductions of $420,000, resulting in a loss of $278,000. The large deductions are due to the acquisition of equipment and the use of immediate expense and additional first-year depreciation to deduct all of the acquisitions. Can Leisel use all of this loss to offset other income she has?

She may use $________________ of the $278,000 proprietorship business loss to offset nonbusiness income . Leisel has an excess business loss of $____________. The excess business loss is treated as part of her NOL carryforward  .

Answer 1

Answer 2

Calculation (Step-by-Step):

1. Excess Business Loss (EBL) Rule (2019):

• For single filers in 2019, the maximum business loss allowed to offset nonbusiness income (e.g., wages, investments) was $250,000.

• Any loss beyond $250,000 is considered an excess business loss (EBL) and must be carried forward as a Net Operating Loss (NOL).

• 
  

2. Apply to Leisel’s Loss:

• Total business loss: $278,000

• Allowed to offset other income: $250,000 (2019 limit)

• Excess business loss (EBL): $278,000-$250,000 = $28,000

3. Result:

• $250,000 can reduce her other income (e.g., wages, dividends).

• $28,000 is suspended and added to her NOL carryforward for future years.

• 
  

Why This Matters:

• The Tax Cuts and Jobs Act (TCJA) introduced the EBL rule to limit large business losses in a single year.

• The $250,000 limit was fixed for 2019 (not adjusted for inflation).

Answer:
Leisel may use $250,000ofthe$278,000 proprietorship business loss to offset nonbusiness income. She has an excess business loss of $28,000, which is treated as part of her NOL carryforward.